Better informed decisions are needed to ensure a more cost-effective acquisition approach for the Navy’s Next Generation Enterprise Network.

Why This Area Is Important

In 2007, the Department of the Navy (Navy) established the Next Generation Enterprise Network (NGEN) program to replace and improve the Navy Marine Corps Intranet, which provides about 382,000 workstations to approximately 700,000 users across 2,500 Navy and Marine Corps locations around the world. NGEN is intended to provide secure data and information technology services, such as data storage, e-mail, and video-teleconferencing. It is also intended to provide the foundation for the Navys future Naval Networking Environmenta set of integrated, phased programs that share a common enterprise architecture and standards.

As envisioned, NGENs capabilities are to be incrementally acquired through multiple providers (contractors). The first increment is to provide capabilities comparable to the Navy Marine Corps Intranet, as well as enhanced information assurance and increased government control over network operations.

To date, according to the Presidents fiscal year 2012 budget, the NGEN program has spent about $434 million on work associated with the transition from the Navy Marine Corps Intranet. The first increment is to be fully operational in March 2014 and is to cost approximately $50 billion to develop, operate, and maintain through fiscal year 2025.

What GAO Found

As GAO reported in March 2011, the Navy did not have sufficient basis for knowing that it is pursuing the most cost-effective approach for acquiring NGEN capabilities. According to the Department of Defense guidance,[1] an analysis of alternatives should examine viable solutions with the goal of identifying the most promising option, thereby informing acquisition decision making. While the Navy conducted an analysis of alternatives, it ultimately selected an approach that was not considered in this analysis and that the Navy estimated would cost at least $4.7 billion more than any of the four assessed alternatives. Further, the analysis of alternatives highlighted the potential for greater schedule and performance risks as the number of contractual relationships in the approach increases. Given that the selected approach includes a larger number of such relationships than the assessed alternatives, the relative schedule and performance risks for this approach are likely greater, and therefore are likely to result in greater costs. (See the table below for the contractual relationships and Navys estimated costs of the assessed alternatives and the selected approach.)

Navy officials did not view the differences in contractual relationships and schedule and performance risks between the approach selected and the assessed alternatives as significant, despite the difference in cost. Nevertheless, by using this acquisition approach, Navy decision makers lack assurance that their selected approach is the most promising and cost-effective course of action.

GAO also determined that the Navys schedule for NGEN did not adequately satisfy key schedule estimating best practices, which GAO has previously identified, such as establishing the critical path (the sequence of activities that, if delayed, impacts the planned completion date of the project) and assigning resources to all work activities. Because it did not satisfy these practices, the schedule does not provide a reliable basis for program execution. According to program officials, schedule estimating was constrained by staffing limitations. However, these weaknesses have contributed to delays in key NGEN events and milestones, including the completion of multiple major acquisition reviews and program plans.

Additionally, successful execution of system acquisition programs depends in part on effective executive-level governance, to include having organizational executives review these programs at key milestones in their life cycles and make informed performance- and risk-based decisions as to how they should proceed.[2] NGEN acquisition decisions were not always performance- and risk-based. In particular, senior executives approved the programs continuing progress in the face of known performance shortfalls and risks. For example, in November 2009, the program was approved at a key acquisition review despite the lack of defined requirements, which officials recognized as a risk that would impact the completion of other key documents, such as the test plan. According to Navy officials, the decisions to proceed were based on their view that they had sufficiently mitigated known risks and issues. However, Navy officials later realized the risk from a lack of defined requirements was a critical issue.

By selecting an approach that carries greater relative schedule and performance risks than other alternatives and that is being executed against an unreliable program schedule, the department increases the risk that its approach will lead to future cost overruns. Furthermore, if the department proceeds along its current course, the issues GAO has identified with the programs schedule, along with the delays already experienced, raise concerns that it will be unable to complete the transition as planned.

Actions Needed

To ensure that NGEN capabilities are acquired in the most cost-effective manner, GAO recommended in March 2011 that Secretary of Defense should

limit further investment in NGEN until the Navy conducts an immediate interim review to reconsider the selected acquisition approach. At a minimum, this review should ensure that the Navy pursues the most advantageous acquisition approach, as evidenced by a meaningful analysis of all viable alternative acquisition approaches; it also should consider existing performance shortfalls and known risks.

Furthermore, to facilitate implementation of the acquisition approach resulting from this review, the Secretary of the Navy should

ensure that the NGEN schedule substantially reflects the key schedule estimating practices, and that future NGEN acquisition reviews and decisions fully reflect the state of the programs performance and its exposure to risks.

The Navy has subsequently indicated that changes to the acquisition strategy are under way. GAO is undertaking work that will assess the extent to which the Navy has conducted its interim review to reconsider its acquisition approach and evaluate the revised strategy, including the basis for determining that this approach is the most cost-effective. GAO will also determine the extent to which Navy has implemented key schedule estimating practices and has made performance- and risk-based decisions. If fully implemented, GAOs key recommended actions should help the Navy ensure that the most cost-effective approach is pursued.

How GAO Conducted Its Work

The information contained in this analysis is based primarily on findings from the products listed in the related GAO products section. GAO analyzed the NGEN alternatives analysis report and underlying support, the programs master schedule, program performance assessments and risk reports, and executive acquisition decision briefings and meeting minutes, among other things. GAO also interviewed cognizant agency and program officials regarding the analysis of alternatives development and results, development and management of the program schedule, and NGEN performance and program risks.

Agency Comments & GAO Contact

GAO provided a copy of its March 2011 report to the Department of Defense for review and comment. The department agreed with the recommendation to ensure that future NGEN acquisition reviews and decisions fully reflect the state of the programs performance and its exposure to risks. The department did not concur with the recommendation to reconsider its acquisition approach. However, as noted earlier, the Navy is currently in the process of reviewing and making changes to its acquisition strategy. Further, the department partially concurred with the recommendation to ensure that the NGEN schedule substantially reflects the key schedule estimating practices, stating that it would consider incorporating practices found to be beneficial. GAO believes that incorporating all of the best practices for schedule estimating in the NGEN master schedule would help the department manage and measure its progress in executing the work needed to transition from the Navy Marine Corps Intranet to NGEN. As part of its routine audit work, GAO will track agency actions to address these recommendations and report to Congress.

For additional information about this area, contact Valerie C. Melvin at (202) 512-6304 or melvinv@gao.gov.